German electricity prices to soar by 25 percent on average

A study by German price comparison portal Verifox suggests electricity tariffs are set to go up by an average of 25 percent in the coming months.

A plug and adaptor
A plug and adaptor. Photo: picture alliance/dpa | Sina Schuldt

In August, September and October, Verivox counted 123 price increases from electricity suppliers, with an average increase of 25 percent.

For a three-person household with a consumption of 4,000 kilowatt hours, this means an average annual increase of €311.

Previously, competitor Check24 had reported average price increases of 47.4 percent in September.

“In view of the high wholesale prices, we expect numerous electricity price increases in the coming months, which will be an additional burden for households,” said Verivox energy expert Thorsten Storck.

The average electricity price could be 45 cents per kilowatt hour or more in the coming year, he explained. According to Verivox, it is currently around 42 cents.

Electricity is also being traded more expensively than ever before on the stock exchange. On the European power exchange Epex Spot, the price for a megawatt hour rose to over €550 this week – equating to more than 55 cents per kilowatt hour.

According to calculations by the German Association of Energy and Water Industries (BDEW), the average price in July was 19 cents. 

READ ALSO: Reader question: Should I invest in an electric heater in Germany this winter?

The reason for the price increase is not only the war in Ukraine, but also the low water levels on the waterways. Ships on the Rhine, for example, cannot currently sail fully loaded – a situation that is having an impact on deliveries of oil and coal.

Along with nuclear, gas and renewable sources, these are both used in the production of electricity. 

Additionally, in July, Germany exported an unusually high amount of electricity to neighbouring France, where numerous nuclear power plants were out of action, and Switzerland, where the drought has hit hydropower capabilities.

To cater for the increased demand, more gas was used in the production of electricity than during the same period in 2022, the Federal Network Agency revealed. 

Criticism for VAT cut

Households are already facing the prospect of hikes in energy prices in October as the government prepares to introduce a levy on gas bills to aid the struggling sector.

The levy, which will be set at around 2.4 cents per kilowatt hour of gas, will be offset by a temporary reduction in VAT, the government announced on Thursday.

READ ALSO: Germany plans to slash VAT on gas bills to seven percent

“With this measure we are offering gas customers relief that is significantly larger than the extra burden imposed by the surcharges,” Chancellor Olaf Scholz (SPD) said of the plans.

However, there have been calls for more targeted relief to support low- and middle-income households that are struggling to make ends meet.

“The reduction in VAT relieves everyone, including those who do not need it at all,” the Paritätische Gesamtverband – a charity umbrella association – told the Rheinische Post on Friday. “Which also means top earners, who could relieve our social systems with the VAT.”

Chancellor Olaf Scholz (SPD)

Chancellor Olaf Scholz (SPD) announces a reduction in VAT on gas bills to offset the gas levy. Photo: picture alliance/dpa | Kay Nietfeld

The traffic-light coalition had initially wanted to scrap VAT on gas bills entirely but received pushback from EU authorities in Brussels, who said removing VAT would contravene EU competition laws.

Instead, the government will use the leeway it is allowed under EU law to drop the rate of VAT to seven percent – two percent above the EU’s five-percent minimum.

The reduced tax rate will run until March 31st, 2022, when the gas levy is due to expire. 

READ ALSO: EXPLAINED: How much will Germany’s gas levy cost you

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How electricity prices are rising across Germany

As the year draws to an end, price comparison portals have observed huge spikes in electricity costs across Germany - though the scale of the price hikes vary across different regions.

How electricity prices are rising across Germany

According to analysis carried out by comparison portal Check24, there were at least 580 cases of price increases in the basic electricity supply at the beginning of the year, with around 7.3 million households affected.

Electricity costs increased by an average of 60 percent, the analysis found, though in some cases were much higher. In the case of the Cologne-based supplier Rheinenergie, a kilowatt hour of electricity has gone up to 55 cents – 130 percent higher than the previous price. 

Comparison portal Verifox, which conducted its own analysis, found that prices were rising by an average of 54 percent across the board. 

“The new year is beginning with a massive wave of price increases for electricity,” said Verifox energy expert Thorsten Storck.

Analysts also noted strong regional differences in the scale of the price increases, with Munich and Cologne topping the list for the most expensive electricity. 

In Munich, a kilowatt hour of energy will cost 61.9 cents from January, compared to 55 cents in Cologne.

Meanwhile, MVV Energie in Mannheim, Baden-Württemberg, will charge almost 45 cents per kWh for its basic supply from January onwards – instead of the previous 27 cents. The East German energy supplier EnviaM, based in Chemnitz, will charge 48.1 cents in the future – 20.1 cents more than before.

In Potsdam in Brandenburg, the region supplier is raising its electricity prices by around 21 percent to 46.5 cents per kilowatt hour.

READ ALSO: ‘It’s going to be a bleak winter’: How people in Germany are coping with the energy crisis

Why are the prices so high? 

In a statement explaining the imminent jump in prices, Rheinenergie pointed to the huge increase in their procurement costs and other overheads.

“Compared to the previous year, prices on the electricity exchanges have risen by more than 300 percent,” they explained. “At their peak they had increased more than tenfold. In addition, the grid fees are also rising.” 

The extreme spike on the markets is yet another consequence of Russia’s invasion of Ukraine, which has sent the price of natural gas soaring.

An electricity pylon near a motorway in Lower Saxony.

An electricity pylon near a motorway in Lower Saxony. Photo: picture alliance/dpa | Moritz Frankenberg

Though gas isn’t the only component involved in producing electricity – much cheaper renewables also account for a decent portion of Germany’s supply – it does have a significant impact on prices. That’s because of something known the “merit order,” in which the most expensive gas-fired plant used to produce electricity is decisive in setting the cost.  

READ ALSO: Germany’s Scholz dims lights on Christmas tree amid energy squeeze

What can customers do?

How to handle the latest wave of price increases may in part depend on who your current supplier is.

According to Udo Sieverding, an energy expert at the North Rhine-Westphalia consumer advice centre, people using a private supplier should consider whether it would make more sense to fall back on the so-called “basic supply.” 

“Customers outside the basic supply should even consider making use of the special right of termination in case of price increases and let themselves fall into the basic supply,” he said. 

The basic supply – or Grundversorgung – is generally provided to people who don’t set up their own electricity or energy contract with another supplier. Prices are set on a regional level and used to be considered expensive, but in recent months they have generally slipped below the rates offered by private companies. 

For people already using the basic supply, the situation is a bit trickier.

“The electricity price increases at the turn of the year are in part drastic,” said Sieverding. “Unfortunately, the new customer tariffs via the intermediary portals are even higher, which means that a change of supplier won’t lead to savings in most tariff areas.”

That means it could make sense to sit tight for now and accept the higher prices, but keep an eye on any deals that could be offered in the coming months. 

READ ALSO: EXPLAINED: How to save money on your German electricity bill

Will electricity stay this expensive in the future? 

Energy prices were rising dramatically even before Russia’s war on Ukraine – in part due to pandemic supply issues – and experts don’t think they’re set to drop anytime soon. 

According to analysis by Check24, a sample household with an annual consumption of 5000 kWh paid an average of 29.4 cents per kWh in November 2020. One year later, it was 31.6 cents. Currently, the average is 42.7 cents.

Apartments in Lower Saxony

A few apartments are lit up in a tower block in Lower Saxony. Photo: picture alliance/dpa | Julian Stratenschulte

Electricity market expert Mirko Schlossarczyk, who works for consultancy firm Enervis, said 40 cents per kilowatt-hour was likely to be the new normal in 2023 and 2024, and that prices could even rise to 50 cents per kilowatt-hour after that. 

Although wholesale electricity prices could fall again significantly in the future, as a result of a prospective drop in gas prices and the increased expansion of renewable energies – the noticeably larger share of the end customer price would be accounted for by levies, surcharges, fees, and taxes, Schlossarczyk said.

“We will not see a return to 32 cents (the pre-war price) in the coming years simply because of the comparatively high wholesale electricity price level and the already announced increases in grid fees,” he added. 

But isn’t there supposed to be a price cap coming?

That’s right: from March 2023, the government plans to introduce a cap on electricity prices that will apply retrospectively from January.

However, this still won’t take electricity bills back to pre-war levels. Instead, 80 percent of a household’s normal electricity consumption will be capped at a price of 40 cents per kilowatt hour, while any excess over this will be billed at ordinary market prices.

That is likely to mean that households that don’t reduce their consumption by at least 20 percent still face much higher bills, and even those that do will pay an average of eight cents more for a kilowatt hour of electricity than they were in 2021. 

READ ALSO: Germany plans to cap energy prices from start of 2023